NEW YORK, Dec. 13, 2018 /PRNewswire/ -- J.P. Morgan Asset Management today released the latest installment of its Ready! Fire! Aim? research series, examining the saving and withdrawal behaviors of defined contribution plan participants and the implications for target date fund design. This year's findings continue the trend witnessed over more than 10 years of Ready! Fire! Aim? research, revealing that participant behavior is much more varied and volatile than many target date fund providers assume, with significant ramifications around retirement outcomes.

"The latest Ready! Fire! Aim? report reveals that many plan participants still aren't positioned for retirement income success despite the efforts of plan sponsors, their advisors, and plan providers. In this year's expanded research, we also were able to identify and analyze the wide variation in behavior across income groups, demonstrating the need for plan sponsors to take into account the personal nature of retirement saving and spending in plan design," said Anne Lester, Portfolio Manager and Global Head of Retirement Solutions, J.P. Morgan Asset Management. "It's also critical for target date fund managers to develop asset allocation models that reflect the fact that participant assets are most vulnerable to account losses in the years leading up to retirement and immediately after."

This year's research included an expanded participant universe, drawing upon data from MassMutual Financial Group and Empower Retirement, who are recordkeepers for more than 4,000 defined contribution plans serving approximately 2 million participants.

Evaluating Participant Behavior Patterns

Ready! Fire! Aim? once again finds persistent and wide variations in saving and investing behavior, impacting the success of retirement plans. Key behavioral trends among participants in the latest analysis include:

-- Automatic enrollment continues to expand participant engagement,
particularly among younger investors.More than half of 25-year old
participants investing in a plan were automatically enrolled, suggesting
that some of these participants may not have invested in the plan
otherwise. This large percentage of younger defaulted participants
emphasizes the positive influence plan sponsors can have by setting
employees on a constructive retirement savings path, while also getting
them to start investing for retirement early in their careers. However,
when not paired with automatic contribution escalation, automatic
enrollment on its own may have unintended consequences.
-- On the downside, contribution rates remain too low, driven by passive
participants.Unfortunately the average contribution rate for passive
participants, those who were automatically enrolled in the plan and never
made contribution changes, fell significantly below those participants
who took action to adjust their contribution rates. A sizable segment of
participants are starting average contributions at a minimum 3.3% rate
and failing to take any action other than what the plan sponsor makes on
their behalf to increase contributions. Disappointingly, even at the
higher end of the salary spectrum, many participants are still simply
contributing far too little.
-- Middle income earners are most likely to take a loan from their
retirement account.Only wealthier participants at the higher end of the
average contribution rate spectrum are even approaching the savings rate
of at least 10% recommended by many industry experts. Meanwhile, middle
income earners are most likely to take a loan, and lower-income earners
continue to make larger post-retirement withdrawals relative to the other
two segments as well.
-- The majority of participants continue to make substantial withdrawals
soon after retiring.The research shows that the average participant
withdrew more than 55% in any given year at or soon after retirement.
From an age perspective, the research again found that withdrawals once
participants reach 59 1/2 distributions were substantially higher than
general industry expectations. In addition, just 28% of participants
remain in their retirement plan three years after retirement.

Implications for Plan Sponsors

In light of the participant insights revealed in the 2018 Ready! Fire! Aim? report, there are a number of key learnings for plan sponsors who seek to improve participant outcomes:

-- Plan sponsors may want to look beyond getting employees into the
plan.While getting employees into the plan is a good first step, to truly
drive retirement funding success plan sponsors and their advisors may
want to focus on encouraging higher contribution rates. This can be
achieved explicitly by implementing automatic contribution escalation
programs at a much higher rate increase than typically used today.
-- Educational efforts should focus on employees at the middle and lower
salary levelsFindings across salary levels indicate a real need to pay
even greater attention to educational efforts targeting employees at
middle and lower salary levels, who tend to save less, borrow more and
withdraw earlier than other participants. Implementing automatic
enrollment and automatic contribution escalation programs have also
proven to be effective strategies for placing these participants on a
more secure retirement savings path.
-- Target date fund design needs to take into account the personal nature of
retirement spending in the years leading up to retirement and immediately
after.Participant withdrawal behaviors vary widely, from those who
quickly cash out their accounts, to those who rollover their assets into
other retirement accounts, and those who use them to help fund increased
post-retirement spending. Plan sponsors and their advisors should
incorporate the full range of these behaviors into plan design, including
evaluating appropriate levels of equity exposure in target date fund
glide paths. It's also critical to keep in mind that participant assets
are most vulnerable to account losses in the years leading up to
retirement and immediately after.

"This edition of the Ready! Fire! Aim? report confirms our view that a well-designed target date fund offers the greatest chance of retirement security for the vast majority of participants," said Daniel Oldroyd, Head of Target Date Strategies, J.P. Morgan Asset Management. "When it comes to guiding participants safely over the retirement finish line, proactive plan design can be just as important as investing and asset allocation."

"We maintain our position that a broadly diversified glide path with a focus on dynamic risk management, such as the JPMorgan SmartRetirement glide path, continues to secure the greatest number of projected participant retirement funding successes," concluded Mr. Oldroyd.

To learn more about J.P. Morgan Asset Management's leading DC investment strategies, product innovations and resources for advisors and plan sponsors, please click here, or to view the full Ready! Fire! Aim? white paper, and full research methodology, please click here.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.6 trillion (as of September 30, 2018) and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of customers in the United States and many of the world's most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

For target date funds the target date is the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each Fund will change on an annual basis with the asset allocation becoming more conservative as the Fund nears the target retirement date. The principal value of the Fund(s) is not guaranteed at any time, including at the target date.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co., and its affiliates worldwide.

View original content:http://www.prnewswire.com/news-releases/jp-morgan-research-reveals-defined-contribution-participants-continue-to-save-too-little-take-loans-and-withdraw-quickly-after-retirement-300764916.html

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.